Biotech Stock Mailbag: Spectrum Pharma

Last week, Discovery shares fell after the company released disappointing study results showing that its experimental drug Surfaxin failed to benefit children in acute respiratory failure.

Within days of that bad news, Discovery entered in a $35 million equity financing facility followed quickly by a $10 million stock offering at a steeply discounted price.

If you're unlucky enough to be a Discovery shareholder, you must be wondering what the hell is going on here? The "new" management team looks to be as incompetent and insensitive to shareholders as the old managers.

Discovery claims to be making progress with the FDA towards a first-quarter 2011 approval filing for the long-delayed Surfaxin as a treatment to prevent Respiratory Distress Syndrome in premature infants. What about Discovery inspires confidence that this goal can be achieved, especially considering the events of the past two weeks?

If and when Surfaxin is approved, I'd reconsider my bearish thesis in Discovery. Not one second sooner. If that means not catching the bottom, so be it. Too many investors have lost money thinking otherwise.

Joe A. writes, "Adam, what is your take on the recent delay from AspenBio Pharma ( APPY)? How long of a setback do you think this could be?"

One benefit of being a stock commentator and not an investor is that I get to read and laugh at disastrous news updates like the one posted by AspenBio last week without wincing in pain as my stock portfolio takes a hit. I'm sorry if that's what happened to you, Joe, but Aspen is ripe for mocking.

Aspen is being forced to delay a re-filing of its FDA approval application for the AppyScore appendicitis test because of "unexplained variability in results from site to site in the initial draft of the statistical analysis report," the company announced on June 7. The results come from a just-completed AppyScore phase III study.

"Unexplained variability" isn't explained in great detail but let's assume that Aspen has discovered an unacceptable level of variability in the accuracy of the AppyScore appendicitis test across the hospitals where the study was conducted.